Financial system managers must work together to restore market confidence

Only a resolve among managers of the country’s capital market and the economy to work together can restore the sagging confidence in the financial system.

A financial expert and capital market analyst, Olufemi Awoyemi, who noted the current low state of investors’ appetite in the Nigerian Stock Exchange (NSE), said this is an indication of the existence of trust deficit in the system, not just as a function of processes, but also a natural reaction from the basic human psychology that drives markets.

Awoyemi, who is the Chief Executive Officer of Proshare Nigeria, an investment advisory firm, was speaking at the BusinessDay Capital Market Conference on the theme, “How to Restore Market Confidence in an era of Economic Uncertainty.”

“Where this trust deficit is widened through the actions of regulators under a period of severe economic and political uncertainty, the gap is unduly expanded in such a way that it makes the resolution more complicated than it should be,” Mr. Awoyemi said.

According to him, to be talking about restoring market confidence in April 2012 must be the clearest indication that various authorities have up till now done little to influence the ‘rate of correction’ desired in the system.

Arguing that this simplistic interpretation may not be a fair assessment of the work done so far by the Securities and Exchange Commission (SEC), the NSE and other stakeholders, he said it would however offer the most honest assessment of the approach deployed to deal with an unusual developmental problem that may define the maturity level of the country’s market in today’s competitive but connected market place.

Besides, Mr. Awoyemi pointed out that the growing number of self-delisting firms on the Exchange could also be taken as a true reflection of the low market confidence, noting that  in spite of the drawbacks, there were still opportunities to communicate to the market that things have changed for the better.

He acknowledged the achievements of the current NSE management and council, pointing out that though the NSE appears to know what is important to do to shape the market, it still would need all stakeholders to get on board to make it happen.

Mr. Awoyemi said confidence can be restored in the market when the managers of the market and the economy develop the ability to work together.

“There must be signals that the Central Bank of Nigeria (CBN), the SEC, and all other market operators can and do indeed work together to deliver a seamless regulatory environment in the financial system,” Mr. Awoyemi said.

Furthermore, he said that the recent introduction of market makers (with opportunities for stock lending and borrowing in the market) as part of initiatives to revitalise the market, could help improve the liquidity status of the market by boosting stocks marketability status and reduce the pains of weak floats of the market.

In addition, he noted that enhancing transparency in the market is the key for maintaining confidence and for crisis prevention.

Mr. Awoyemi said the lack of a clear path to market confidence is one of the drawbacks to the cocktail of interventions undertaken by the myriad of regulatory bodies involved in the financial system.

Mr. Awoyemi, who is a also technical consultant to the House Committee on Capital Market, said the working relationship between the co-ordinated financials services regulatory bodies as well as the legislature should move beyond the ‘mouse trap’ approach to handling issues for political benefits.

According to him, what is required is a ‘step up to the plate’ approach that deploys both lobbying tactics and best-in-class professional support to the lawmakers in turning them into a facilitator of market development and not a post-development ‘agro’ court yard.

On the current market probe, he said since the House is legally empowered to deliver oversight functions over the SEC and by extension, the market, it is important that those to whom invitations were addressed should consider it appropriate to respond in such a way as to emphasise respect and regard for the constitution, despite whatever misgivings.

Rather than attempt to take over the role of the SEC as the protector of the investor, Mr. Awoyemi said the key role of the House Committee in helping the market regain investors’ trust is that of expanding the relevance of the capital market as a creator or wealth making opportunities to the electorate and ensuring through the capital markets that Nigeria is able to provide the much needed liquidity and depth needed to access long term capital to fund its infrastructural needs and deficits.

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